Toshiba shares, bonds tumble as second downgrade fans writedown fears

Shares in Toshiba fell more than 19 percent on Thursday, clocking a third day of heavy losses after the Japanese tech-to-nuclear conglomerate said earlier this week it faced a potential multi-billion dollar writedown.

Shares in Toshiba fell more than 19 percent on Thursday, clocking a third day of heavy losses after the Japanese tech-to-nuclear conglomerate said earlier this week it faced a potential multi-billion dollar writedown.

Bond yields have also surged and the cost of insuring against its debt have soared.

Earlier this week, Toshiba said cost overruns at a U.S. nuclear business it bought from Chicago Bridge & Iron last year, CB&I Stone & Webster, meant it could face “several billion dollars” in charges, acknowledging a bruising overpayment.

Ratings agencies were quick to respond. Late on Wednesday, Moody’s became the second agency to downgrade Toshiba’s rating, pushing it deeper into “junk”, or non-investment grade territory, with a Caa1 rating, from B3.

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“Although Toshiba is still assessing the exact amount of the impairment loss, its financial metrics will likely deteriorate further, potentially resulting in a negative equity position,” said Masako Kuwahara, Moody’s lead analyst for Toshiba.

Moody’s said the downgrade also reflected “mounting concerns” over corporate governance, especially in relation to due diligence for acquisitions. It said the ratings are under review for a further downgrade because of “potential for a further deterioration in Toshiba’s operating and financial performance”.

Since Tuesday’s warning, Toshiba’s share drop has wiped about $6.5 billion off of its market value.

The shares plunged 20 percent at the market open on Wednesday and at 0529 GMT on Thursday were down another 18 percent at 255 yen.

The cost of insuring against a Toshiba credit default had soared by late Wednesday in the most actively traded London market. Five-year insurance, or credit default swaps, was quoted at 437/467 bps compared with Monday’s 75 bps.

The quote suggested it would cost $437,000 – $467,000 per year for five years to insure $10 million in bonds.

Toshiba bond yields have spiked as well. The company’s 1.68 percent bonds due 2020 were yielding 5.57 percent late Wednesday, up from 1.77 percent on Tuesday, Thomson Reuters data shows.